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Wednesday, February 18, 2015

Prospecting for "interested party" status to sustain a protest

The two most recent posts prior to this one dealt with, in the earlier case, whether an actual bidder was an "interested party" such as to allow a protest, and the more recent post dealt with the question whether changes in contract requirements might require a new solicitation. This case deals both with standing as an "interested party" and changes in a contract requiring a new solicitation, in a twist on both topics: who is a "prospective" bidder or offeror.

The first case presented, deals with the usual situation of a protest of a solicitation in which there is no allegation of a change requiring a new solicitation, by an alleged "prospective" bidder, and concludes with one statement describing, in somewhat categorical language, that the timing of the protest determines whether a protestor is an "interested party" as a "prospective" bidder.

The second case presented deals with the case of a protest by an alleged "prospective" offeror which alleged changes in the contract that require a new solicitation. This protest was brought clearly outside the bounds of who is "prospective" as required by the first case, but the protest was allowed and the protestor was found have "interested party" status. It, in effect, articulates an exception to the usuall rule.

As usual, don't rely on the cases as presented here; read the original at the link.

MCI Telecommunications Corp. v. US, 878 F. 2d 362 - Court of Appeals, Federal Circuit 1989
Believing that AT & T's proposal failed to conform with material, mandatory requirements of the solicitation, and that the GSA, after awarding that contract to AT & T, impermissibly waived mandatory contract requirements rather than resolicit the contract, MCI sought to challenge the award of the contract by bringing a protest before the GSA board. MCI did not participate in the bidding process.

The board is empowered to hear such protests upon request of "an interested party." [T]he term "interested party" means, with respect to a contract or proposed contract described in subparagraph (A), an actual or prospective bidder or offeror whose direct economic interest would be affected by the award of the contract or by failure to award the contract.

MCI claimed that, although it was not an "actual offeror or bidder" with respect to the original solicitation, it is a "prospective bidder or offeror" in the event of a resolicitation, and that its economic interest is directly affected by the award to AT & T.

Accordingly, to establish that it is an interested party, MCI must convince us that it is a prospective bidder or offeror, under a correct legal interpretation of that term. This case, then, poses the question whether a would-be protestor wishing to bring about a resolicitation on which it says it intends to bid has the necessary status, even though it failed to either bid in response to the original solicitation or to protest before the close of the proposal period for the original solicitation.

The language of section 759(f)(9)(B) plainly establishes, by use of the word "prospective," that, in order to be eligible to protest, one who has not actually submitted an offer must be expecting to submit an offer prior to the closing date of the solicitation. After the date for submission of proposals has passed, however, the would-be protestor can no longer realistically expect to submit a bid on the proposed contract, and, therefore, cannot achieve prospective bidderhood [yes, bidderhood; a new one on me] with regard to the original solicitation.

Since the opportunity to qualify either as an actual or a prospective bidder ends when the proposal period ends, MCI's stated intention to submit a proposal in response to any resolicitation, and its efforts to secure resolicitation by filing a protest, can do nothing to create the necessary interested party status. Accordingly, no matter how well founded MCI's charges that the GSA waived
mandatory contract requirements and that a resolicitation should occur, MCI's argument that it is an interested party must be rejected.
Matter of: Poly-Pacific Technologies, Inc., B-296029, June 1, 2005
Poly-Pacific Technologies, Inc. protests the modification of contract. Poly-Pacific argues that the agency improperly relaxed the performance requirements in the contract beyond what was reasonably contemplated by the underlying solicitation.

The original solicitation sought proposals that required offerors to both lease plastic media and recycle the resulting SBM in compliance with regulations, and offerors were thus required to propose technical solutions and pricing for both the lease and recycling components of the work. Due to changes in EPA rules regarding the recycling of the plastic media, after work had begun on the awarded contract, the contract was modified to drop that requirement.

Poly-Pacific did not submit a proposal in response to the RFP, as it was not then on the list of qualified providers authorized to lease the plastic media, although it did become an authorized provider subsequently, and before the complained-of contract modifications.

Poly-Pacific argues that the modification of UST’s contract improperly relaxed the performance requirements, thereby changing the scope of work anticipated by the RFP and resulting in an improper sole-source contract of the modified work.

Once a contract is awarded, however, our Office will generally not review modifications to that contract, because such matters are related to contract administration and are beyond the scope of our bid protest function. An exception to this rule arises where a protest alleges that a contract modification changes the work from the scope of the original contract, since the work covered by the modification would otherwise be subject to the statutory requirements for competition absent a valid determination that the work is appropriate for procurement on a sole-source basis. [I usually refer to this exception as the "relation back rule", because it relates back to the essence of the solicitation, allowing a protest of the solicitation, and taking it out of the contract dispute processes (which do not allow a third party to protest).]

Although challenges to the relaxation of contract requirements are less common than challenges to contract modifications that enlarge a contract’s scope of work, our Office recognizes that both fall within this exception, and we will consider whether modifications of performance requirements result in work that should be subject to competition.

In assessing whether a contract modification is outside the scope of the original agreement, we examine whether the original nature or purpose of the contract is so substantially changed by the modification that the original and modified contracts are essentially and materially different. In assessing whether the modified work is essentially the same as the effort for which the competition was held and for which the parties contracted, we consider factors such as the magnitude of the change in relation to the overall effort, including the extent of any changes in the type of work, performance period, and costs between the modification and the underlying contract.

Where an agency has relaxed a contract’s performance requirements, our Office also looks to whether the change in requirements was the type that reasonably would have been anticipated under the solicitation, and whether the modification materially changed the field of competition for the requirement.

We disagree with the agency’s view that the modification does not materially change the requirements of the contract or result in a fundamental change to the nature of the work. The original solicitation sought proposals that required offerors to both lease plastic media and recycle the resulting SBM in compliance with regulations, and offerors were thus required to propose technical solutions and pricing for both the lease and recycling components of the work.

Furthermore, Poly-Pacific contends, and the agency does not dispute, that the costs of leasing plastic media with no recycling requirements is as much as 50 percent less than the costs of leasing plastic media with recycling requirements. An agency may not modify a contract by changing or relaxing requirements where the resulting work is fundamentally different from the work anticipated by the original solicitation. Evidence suggesting that proposals submitted on the basis of a modified contract’s relaxed requirements could result in more competition and lower prices generally weighs in favor of finding that the contract modification was improper.

In our view, the modification resulted in a material and fundamental change to the nature of the work that changed the field of competition and that work, therefore, should have been competed on a full and open basis.

Although the modification of UST’s contract occurred approximately 2 years ago, we find that Poly-Pacific’s protest is timely. Upon learning through news accounts that UST was under investigation for allegedly failing to recycle the SBM according to the contract, Poly-Pacific diligently pursued information regarding UST’s performance. Poly-Pacific made several unsuccessful attempts to obtain information from the agency regarding UST’s contract following the news accounts of the investigation of UST. The agency did not inform Poly-Pacific of the modification until February 25, 2005. We conclude that Poly-Pacific diligently pursued the information that forms the grounds for this protest, and its filing of the protest within 10 days of its notice of the modification is timely.

Finally, we find that the protester was prejudiced by the agency’s improper modification of the contract. As discussed above, Poly-Pacific is a qualified source to provide type V plastic media, and thus could participate in a competition for the work now required under the contract modification.
Under the ABA Model Procurement Code, a prospective bidder or offeror can protest provided it is "aggrieved". It is aggrieved if there was a material defect in the solicitation which wronged (prejudiced) the protestor. Such a protest must be filed within a time period (14 days under Guam law) from the time the aggrieved protestor knows or should have known of the facts by which it became aggrieved.

One protest case before the Guam Public Auditor, as with the Poly-Pacific case, involved a protest made years after the award of a contract. The Public Auditor decided, based on the facts of the case, that the protest was timely filed.

Contract changes to accommodate changes in economic conditions in delayed performance require new procurement

This case from England involved a Development Agreement made between a local council and a developer. As usual, I only give a partial report of the case, and you must read it in its entirety at the link for context, accuracy and fullness (there is much of interest and importance left out here). If you would like a quicker analysis of it, read this article: Winchester property development case highlights changeable 'material variations' test under procurement rules.
The Council, as owner of various freehold and leasehold sites in the city centre, entered into a "Development Agreement relating to a site at Broadway/Friarsgate Winchester" with Thornfield Properties (Winchester) Limited (the Developer) on 22 December 2004. On 9 February 2009, the Council granted planning permission for the redevelopment scheme by the developer designated in 2004, but thereafter, due to economic conditions affecting the concerned area, the original developer went into administration and the project was ultimately sold to a third party.

The Development Agreement WAS varied on a number of occasions, namely on 22 October 2009, on 10 December 2010 and on 30 January 2014, and many changes were made from the original agreement, making it more profitable to the developer. The variations to the development agreement, inter alia, allowed the Council to request that the affordable housing be provided off-site or by way of a commuted sum. The parties to the Development Agreement had also agreed in an exchange of letters that the Council would not take advantage of its ability to terminate the Agreement.

Restrictive procurement practices by public bodies (in particular, entering into contracts only with preferred domestic contractors) does not allow for fair competition between firms from other member states and may result in market distortions. The Council ought to have complied with the procurement requirements, but did not do so, in reliance on mistaken legal advice. Instead it entered into an agreement with Thornfield Properties because it had a pre-existing commercial relationship with Stagecoach to redevelop its bus station on the site. No other contractors were considered. It is now too late to challenge the lawfulness of the Development Agreement on this basis.

it is agreed that the question whether or not the variations to the Development Agreement were so substantial as to require a new procurement procedure is to be determined by reference to the case law.

The leading textbook, Arrowsmith: The Law of Public and Utilities Procurement (3rd ed.), sets out the principles at paragraph 6.267:
"Another issue to consider is when a proposed extension, renewal or modification to an existing arrangement amounts to a new "contract" under the 2004 Public Sector Directive and Public Contract Regulations 2006. When this is the case a contracting authority may not simply place the work with the existing contracting party, but must award it using a new procedure under the directive/regulations. This issue is not currently dealt with by explicit provisions in the directive/regulations. However, the principle that amendments to an existing contract may be regarded as a new contract needing a new procedure has been established and elaborated in the case law of the CJ, most notably in the case of Pressetext.

A key reason for this principle relates to the purpose of the legislation of ensuring that work is awarded in accordance with transparent procedures to prevent discrimination. If the contract awarded is later changed, there is a risk that such changes are made for discriminatory motives (for example, to award the firm more work or allow it to operate under easier terms) and that national firms, in collusion with the contracting authority or otherwise, may be able to obtain an advantage in the award procedure by tendering favourable terms in the expectation that they will be changed after conclusion of the contract. Changes to concluded contracts can also potentially undermine any policy that contracts should be undertaken by the best tenderer in order to develop the single market. If this is considered as an objective of the directive, rules to limit changes to concluded contracts are also appropriate from this perspective, on the basis that the existing contracting partner may not be the best firm to perform the revised contract. Changing a contract also potentially violates the equal treatment principle that can support such objectives. From a national perspective, changing a contract without a competition for the revised contract raises value-for-money issues as the change is made without considering whether other economic operators can offer value for money and without the terms being fixed under the pressure of competition."

The leading case is Case C-454/06 Pressetext Nachrichtenagentur GmbH v. Republik Österreich [2008] ECR I-4401. The CJEU held:
34. In order to ensure transparency of procedures and equal treatment of tenderers, amendments to the provisions of a public contract during the currency of the contract constitute a new award of a contract within the meaning of Directive 92/50 when they are materially different in character from the original contract and, therefore, such as to demonstrate the intention of the parties to renegotiate the essential terms of that contract (see, to that effect, Case C-337/98 Commission v France [2000] ECR I-8377, paragraphs 44 and 46).

35. An amendment to a public contract during its currency may be regarded as being material when it introduces conditions which, had they been part of the initial award procedure, would have allowed for the admission of tenderers other than those initially admitted or would have allowed for the acceptance of a tender other than the one initially accepted.

36. Likewise, an amendment to the initial contract may be regarded as being material when it extends the scope of the contract considerably to encompass services not initially covered. This latter interpretation is confirmed in Article 11(3)(e) and (f) of Directive 92/50, which imposes, in respect of contracts concerning, either solely or for the most part, services listed in Annex I A thereto, restrictions on the extent to which contracting authorities may use the negotiated procedure for awarding services in addition to those covered by an initial contract.

37. An amendment may also be regarded as being material when it changes the economic balance of the contract in favour of the contractor in a manner which was not provided for in the terms of the initial contract.
Thus, the test to be applied is whether the variations to the contract "are materially different in character from the original contract and, therefore, such as to demonstrate the intention of the parties to renegotiate the essential terms of that contract" (paragraph 34). Any material difference has to be assessed by comparing the contract as originally entered into and the contract after variation.

Both counsel agreed that the likelihood of other economic operators bidding for the contract, had it been advertised as amended, ought to be considered as part of the test in paragraph 34 of Pressetext, reflecting its underlying purpose of ensuring equal opportunity for economic operators. Both counsel agreed that the reference in paragraph 35 to "allowing" other tenderers to be admitted or tenders accepted should be broadly construed. It could include a range of possibilities, for example, where operators had been deterred from applying by the less favourable terms but were interested in applying under the improved terms, or where threshold conditions had been relaxed, enabling more operators to qualify.

Contrary to Mr Elvin's submission, I consider that an increase in potential profitability for the economic operator can be a material variation for the purpose of the Pressetext test. Although paragraph 37 can be read as limited to the economic balance as between the contracting parties, where (as here) the court is considering a development contract or a concession contract, the commercial value will be judged by the potential profits to be obtained from third parties, not the awarding authority. The financial terms between the parties remain relevant but they are not the only consideration.

Mr Elvin submitted that, in order to succeed, the Claimant had to identify other economic operators who would have wished to bid for the contract, and would have had a realistic prospect of success. He pointed to the use of the "would" in paragraph 35 of Pressetext rather than "might". He also relied upon the judgment of Andrews J. in Edenred, at:
"There is much to be said for the approach taken by Coulson J. [in AG Quidnet Hounslow LLP v Hounslow LBC [2012] EWHC 2639 (TCC)] of requiring evidence that someone beside the original bidders would have bid for the contract, because the EU procurement rules are designed to protect against real, not hypothetical distortion of competition. However, I do not need to decide the point, because even if one approaches the question on the basis that a hypothetical bidder has been shut out of the bidding process by the absence of reference to the subject-matter of the proposed amendment, it seems to me that in principle that must necessarily be a realistic hypothetical bidder – i.e. the evidence must demonstrate that there would be someone else who would have been ready, willing and able to bid and who would have wished to have done so if the opportunity had been made clear, but who did not do so because it was not."
Mr Palmer did not object to the requirement of a "realistic hypothetical bidder" but he submitted that Pressetext and other CJEU cases on the procurement Directives did not require firm evidence of an alternative potential bidder in order to satisfy the test in paragraph 34 of Pressetext. In my view, Mr Palmer's analysis is correct.

I agree with Mr Palmer's submission that Andrews J.'s approach to the evidence reflected the particular facts in Edenred, where there had recently been a full tendering process and so the unsuccessful bidders and those who had expressed an initial interest could all be identified. The Claimant in this case is in a more difficult position, as no tendering process has ever been carried out, and so he cannot identify any actual or potential bidders who were deterred or disadvantaged. The requirement suggested by Mr Elvin would have the undesirable consequence of placing a Defendant who fails to comply with any procurement requirements in a better position than one who does.

In R (Law Society) v Legal Services Commission [2007] EWCA Civ 1264, the Court of Appeal was concerned with legal aid contracts which had been awarded by the Legal Services Commission to solicitors without a competitive bidding process. The Court concluded that the contract did not meet the requirements of transparency under the 2004 Directive and the 2006 Regulations. Lord Phillips LC said, at [80]:
"We consider that the principle of transparency will not be satisfied in the present context if uncertainty as to the nature and effect of the amendments that may be made deters, or is liable to deter, some potential service providers from entering into the contract."
Thus, the court made its assessment, at least in part, on the basis that the amendments deterred or were liable to deter potential service providers.

In my judgment, the task of the court is to apply the test in Pressetext on the evidence before it. Evidence of actual or potential bidders may assist but it is not a pre-requisite. Here the Claimant relies on evidence of the commercial appeal of this development contract to potential developers, and the significantly more favourable terms offered in 2014, compared with 2004. In my judgment, the Claimant has to satisfy the Court, on the balance of probabilities, that a realistic hypothetical bidder would have applied for the contract, had it been advertised, but he is not required to identify actual potential bidders.

The evidence demonstrates that the variations to the Development Agreement contract were made because the Council accepted the Developer's representations that the project was not viable on the original contractual terms, and therefore it would not proceed. It is evident that, in order to save the project, the parties did re-negotiate the terms of the contract. Although I recognise that the subject-matter of the contract remains the same, in my view, the varied contract is materially different in character to the original contract.

The most significant difference is that, overall, the varied contract is considered by the contracting parties to be viable for the Developer, whereas they consider the original contract to be unviable. Overall, I consider that, had this variation been in place in 2004, the contract would have been of significantly greater commercial value to potential bidders. A potential bidder could not have anticipated this change; nor was it anticipated or provided for in the contract. In my view, this is a major change to the contract.
The discussion of the issues in this case would be familiar to most students of procurement on the other side of The Pond, which is an odd statement to make by me, being entirely out in the middle of The Other Pond. The need for a new procurement here was related to changes beyond the scope of the contract ("an amendment to the initial contract may be regarded as being material when it extends the scope of the contract considerably to encompass services not initially covered") and outside the field of competition ("the likelihood of other economic operators bidding for the contract, had it been advertised as amended, ought to be considered"), two familiar concepts here.

I do, though, take small issue with the statement in the article quoted at the beginning of this post, that "changes to the economic viability of property development schemes over time could influence whether re-procurements by local authorities are necessary when changes to property development contracts are made to account for the changed economic conditions". It must be considered that the primary, if not only relevant, focus is on the nature of the changes actually made to the contract, not the cause (economic viability of the property development schemes over time).

Standing at the end of the line is without prejudice

Well it's all right, even if they say you're wrong
Well it's all right, sometimes you gotta be strong
Well it's all right, As long as you got somewhere to lay
Well it's all right, everyday is Judgment Day

Well it's all right, riding around in the breeze
Well it's all right, if you live the life you please
Well it's all right, even if the sun don't shine
Well it's all right, we're going to the end of the line



In this federal US Claims Court case, the protestor thought it was all right being at the end of the line. It wasn't. It was not in sufficient competitive position to win, so was not "interested" in the solicitation.

There are a lot of instructive statements in this case covering a variety of subjects, and I've mentioned many of them, but without much context or elaboration. Read the whole case at the link, for context, accuracy and completeness; and to see where I'm paraphrasing and if correctly.


UNIVERSAL MARINE CO., K.S.C., v U.S., United States Court of Federal Claims No. 14-1115 C, February 10, 2015.
In March 2009, the United States Army (“the Army”) awarded Contract W52P1J-09-D-0025 to Universal Marine Co., K.S.C. (“Universal Marine”) for the operation of a container yard in Kuwait that repairs and refurbishes commercial shipping containers. On April 24, 2014, the Army solicited Request for Proposals No. W52P1J-14-R-0062 (the “RFP”) for the same services as the March 2009 Contract. The incumbent did not get up.

To select an awardee, the Army used a lowest price technically acceptable (“LPTA”) source selection process that evaluated three factors: Technical; Past Performance; and Price. The technical factors were rated on an "pass/fail" or "acceptable/non-acceptable" basis. In the event an Offeror had no recent, relevant past performance, a rating of Acceptable was assigned. Thus, an offeror must clear three successive hurdles to be awarded the contract: First, an offeror must obtain an “Acceptable” rating in Technical Capability and an “Acceptable” rating in Past Performance, and then must propose the lowest price.

In footnote 4, the Court explained that the LPTA procurement method was one form of "best value", but that price/value “[t]radeoffs are not permitted”, thus an LPTA proposal is per se the best value if it meets the selection criteria and proposes the lowest price.

In incumbent, Universal Marine, had the highest price amongst 4 final bidders, all of whom were evaluated to be "acceptable" on technical and past performance factors.

The Government argued that Universal Marine lacks standing, because it finished fourth and has not challenged the offerors who finished second and third. Thus, even if the low bidder's (KGL’s) award were disqualified, Universal Marine still “cannot show that it had a substantial chance of being awarded the contract when it proposed the highest price.” Universal Marine has alleged no error that would disqualify the second or third highest proposals, and therefore lacks standing, because it “has no substantial chance of being awarded the contract.”

Moreover, Universal Marine “cannot show that it was prejudiced by a significant error in the procurement process.” To show prejudice, a protestor must establish “that there was a substantial chance it would have received the contract award but for th[e] error.” Universal Marine cannot show a substantial chance of receiving the award and consequently cannot demonstrate prejudice.

Universal Marine contends that “the issue is not whether an [o]fferor is ‘next in line,’ but whether the [o]fferor has a reasonable expectation to receive an award.” It claims, being “in line” for an award means “being able to meet the requirements such that the Plaintiff is an eligible bidder and potential awardee on the contract.”

Finally, Universal Marine argues that the Army and KGL “would like to make the calculus of standing and interest party overly simplified.” Determining standing, it claims, requires examining the merits of the protest, not just a “blind reliance on the stacking and arraying of the ‘acceptable’ proposals.” Universal Marine claims it is not required to “dissect each proposal in the array that is above it, especially if it demonstrates a systemic flaw in the evaluation process[.]”

As a threshold matter, a plaintiff contesting the award of a federal contract must establish that it is an “interested party” to have standing.

A two-part test is applied to determine whether a protestor is an “interested party.” The protestor must show that: “(1) it was an actual or prospective bidder or offeror, and (2) it had a direct economic interest in the procurement or proposed procurement.” A third test has added that a protestor must show the alleged errors in the procurement were prejudicial. (“It is basic that because the question of prejudice goes directly to the question of standing, the prejudice issue must be reached before addressing the merits.”)

A party demonstrates prejudice when “it can show that but for the error, it would have had a substantial chance of securing the contract.” Importantly, a proper standing inquiry must not conflate the requirement of “direct economic interest” with prejudicial error. ([E]xamining economic interest but excluding prejudicial error from the standing inquiry “would create a rule that, to an unsuccessful but economically interested offeror in a bid protest, any error is harmful”).

In this case, Universal Marine submitted a proposal in response to the RFP, and, as an actual bidder, it satisfies the first element of the “interested party” test. But, Universal Marine did not satisfy the second element, i.e., that it “had a direct economic interest in the procurement.” Universal Marine’s proposed price was the highest of the four proposals. Thus, to have standing, it would have to challenge the bona fides of each of the other three offeror’s eligibility or the solicitation as a whole. But it did not. Universal Marine’s challenges concern only the awardee -- KGL. Based on the four challenges, even if the court were to set aside the award to KGL, the award would go to the second-place offeror. Without any challenge to the intervening offerors, Universal Marine cannot prevail.

As for Universal Marine’s reliance on Hyperion, Inc. v. United States, 115 Fed. Cl. 541 (2014), it is misplaced, even though some facts are similar to this case. Hyperion filed a post-award protest as the highest-priced of four “Acceptable” offerors in an LPTA solicitation. However, Hyperion “contend[ed] that all three [other] offerors failed to meet [certain provisions] and failed to include required [provisions].” Hyperion went on to allege particular defects in each of the other three proposals. “In Hyperion’s view, it was the only technically acceptable offeror and should have received the award.” This case, however, is distinguishable. Here, four out of Universal Marine’s five arguments are specific to KGL, and the problem identified with the solicitation was waived as untimely. Thus, even though “proving prejudice for purposes of standing merely requires ‘allegational prejudice,’” Universal Marine has not alleged facts that, if true, would create a “substantial chance” that it would be awarded the contract.

For these reasons, the court has determined that Universal Marine lacks standing to seek an adjudication of this bid protest.

Wednesday, February 11, 2015

Recycling the procurement cycle

The following link is to an interesting story for our times. Technological and other changes are happening so fast these days that by the time the ink on a blue print to satisfy a perceived need is dry, the end product is obsolete. It is upending the procurement cycle, and solving the problem is as critical as acquisition needs.

As usual here, I cut, rearrange, paraphrase, leave stuff out, and otherwise play fast and loose with the cited article to make or illustrate a point; so read the original at the link.

Wary of Procurement Mishaps, Air Force Takes Cautious Steps
The Pentagon’s budget proposal for 2016 will help replenish the Air Force fleet but new aircraft designs are years or decades away. the Air Force is hitting the pause button on several programs, including a next-generation fighter, a new trainer airplane and a ground surveillance jet. Officials said they are being cautious about committing to new designs at a time when technology is advancing far more rapidly than the military’s procurement decision cycle.

They also are resistant to make big wagers on unproven technology during a period of great uncertainty about future threats.

As national security threats become more complex and the challenges too unpredictable, a different approach to developing future weapon systems is needed, said Air Force Lt. Gen. James M. "Mike" Holmes, deputy chief of staff for strategic plans and requirements.

That means a departure from the predictable cycle of replacing an airplane with another airplane. “We’re trying to not jump straight to the idea that we’re going to build a sixth-generation fighter,” Holmes said during a roundtable with reporters at the Pentagon.

For the Air Force, the question is how to ensure “air superiority” in the future, and a new-and-improved stealth fighter might no longer be the answer, he said. “We’re trying to get a feel for what is the requirement for air superiority in the future and look at all the domains and not just jump into another air platform.”

Under the traditional process, the Air Force would conduct an “analysis of alternatives,” or a market study and years later choose an airplane design and begin development. The service wants to do business differently, said Holmes. “We just don’t want to jump straight to the AOA on the next airplane before we’ve looked across the range of ways of doing air superiority in the future. That includes cyber, space systems, ground and maritime. Not just jump straight to an air solution.”

The procurement system was designed for a more foreseeable world, he explained. “With 20-year development programs, by the time you design it and set requirements, by the time you field it, you have to think about what comes next.”

Another concern is how to get ahead of the fast-moving innovation train. Other countries have studied U.S. weaponry and how they are employed, and are now making systems to neutralize U.S. advantages, Holmes said. This is happening “faster than was anticipated,” he added. “The gap between our capability and the capability of potential adversaries is decreasing, and it’s decreasing at an accelerated rate.”

While it is “prudent to think about what comes next,” Holmes said, the military has to avoid the traps of traditional thinking. The tendency is to build a “little bit better F-35 or even a leap ahead F-35 or F-22” rather than “think about the right approach to solve problems.”

Chief of Naval Operations Adm. Jonathan Greenert shares that view. In a presentation at an Office of Naval Research conference last week, he observed that advanced stealth fighters are not a silver bullet. Holmes said the CNO makes a valid point. “Our analysis says that with modern integrated air defense systems, stealth is necessary but may not be sufficient.”

The military has to be prepared to fight “air against air, air against ground, ground against air,” Holmes said. “You could see an application of swarming autonomous [vehicles] to go target surface-to-air defenses.” But, if so, he added, “Is it worth the cost to pay for autonomy for something that’s going to blow itself up when it hits a target? There are a lot of things we need to learn.”

The Air Force is reluctant to move forward with some modernization programs until is has more certainty about the state of technology. Companies like Boeing, Northrop Grumman and Textron are working on clean-sheet concepts, and forced the Air Force to question whether it should buy off-the-shelf or gamble on a new design.

Officials are once again scrubbing the T-X requirements and are making it a test case for a new procurement reform initiative called “bending the cost curve.” T-X is years behind schedule but the Air Force is comfortable with the delay because it is allowing program officials to better understand the technology offered in the open market and to capitalize on private investment, Holmes said. The Air Force also is reevaluating the T-X acquisition rules so that proposed aircraft that exceed the baseline requirements without adding cost can get credit in the competition.

The Air Force in this case benefits from putting off contract awards and letting market forces work in its favor. “We think that keeping multiple teams in competition” helps the Air Force, said Holmes. “Having airplanes that are flying puts pressure on developmental airplanes, and having developmental planes puts pressure on airplanes that are flying.”

Doubts about earlier acquisition plans also prompted the Air Force to delay a competition to build a ground surveillance aircraft to replace the aging JSTARS, or joint surveillance target attack radar system. Companies like Boeing, Bombardier and Gulfstream are expected to propose JSTARS concepts built in smaller, commercial airframes that they claim will save the government money both in the procurement and lifecycle support of the aircraft.

Officials for some time had begun to question whether the JSTARS’ intricate sensor suites and electronics could be squeezed into smaller airframes. The Air Force decided to delay the program in order to further investigate the issue. The question is “what’s possible and what’s not,” Holmes said. “When [Air Force officials] looked at the strategy we had built for acquisition, they thought it was risky. The integration challenge may have been understated by some of the proposals. We want to keep the competition longer, it drives the price down.”

Wednesday, February 4, 2015

The problem with school books

Every year for every class since modern education began, students need books, and typically they are provided by the schools. But it seems to come as a surprise to many of the schools.  

Every year.

Guam schools have notoriously been poor managers of text book requirements for decades.  But it is not being singled out. Consider the following:

Sierra Leone: Procurement Irregularities Uncovered At Education Ministry
According to the 2013 Auditor General's report, the Ministry of Education, Science and Technology failed to follow procurement rules in the year under review, thus violating the National Public Procurement Authority Act 2004.

The report states that the ministry adopted a restricted bidding method approved by the National Public Procurement Authority (NPPA) for no objection on the basis of urgency of time.

It also notes that it took more than six months from the inception of the process to the award and signing of the contract agreement for the supply of foods, while it took more than eight months from the commencement of the process to the signing of the contract agreements for the supply of text books and teaching and learning materials.

Thus, the report concludes that it stands to reason that ministry officials had sufficient time to have followed the required procurement processes.
Sound familiar?

Treat government business like private business: privatize it

This article (read full report at the link) begs the question: why not just privatize it and get government out of the business of selling alcohol?

Virginia General Assembly considers proposed ABC operational changes
ABC is currently a department of the Virginia state government and controls the possession, sale, transportation and delivery of alcoholic beverages within the state. The department also establishes and operates stores for the sale of distilled spirits.

Both houses of the Virginia state legislature are considering bills which would allow the Virginia Alcoholic Beverage Control to operate outside of government authority. The proposed bill would change ABC board member selection processes. For example, commissioners will now require a business degree.

Del. Dave Albo said he would like to see ABC operating more like a business. “Government agencies have to follow certain procurement rules,” he said. “It’s really hard to run a [shelf] business when you can’t go out and buy shelves when you need them. Instead it takes six months to procure [products].”

Sen. Ryan McDougle, R-Hanover, said the changes proposed in the bill would similarly allow ABC to operate like a business as opposed to a government agency. “We hope to enable ABC to do things a business would do to increase profits and have better customer service,” McDougle said. “[These changes] will enable ABC to be managed and operated more like a business instead of a strictly governmental entity.”

An independent authority could also more readily fire employees who are not performing up to standards, Albo said. “Government employees have more rights than regular employees, so it takes longer to fire under-performers,” he said.

“ABC is going to save a lot of money on procurement services,” Albo said. “They also won’t have to use the state computer system. We expect ABC to be able to raise more money by operating more efficiently, and then that money goes to the General Assembly fund.
Most states regulate alcohol sales and distribution without taking on the risk and responsibility of selling it. It's a big business, and lucrative for those who decide what to buy from whom, especially when it is operated as a monopoly.

Sunday, February 1, 2015

The eyes of Texas are not on its procurement system -- yet?

As is customary with this post, you must read the mentioned article. I tend to cut, paste, rearrange, paraphrase, leave out important stuff and otherwise use the material for didactic purposes, not literature, legal or otherwise. 

For instance, in the following article there is a catalog of big-name contractors (e.g., Accenture, Xerox, IBM) and big money contracts that went awry that are mentioned. You may find reading about those much more interesting and juicy than reading the about the context in which they went awry.

In Texas contracting, failure is an option
For two decades, Texas has pursued a wave of privatization of public functions with the belief that corporations could save taxpayer money while improving the delivery of essential government services. But multiple contracts representing billions in public dollars have blown up in the state’s face, leading to lawsuits, ethics investigations, wasted funds and frustrated Texans.

The pattern that emerges is one of famously business-friendly Texas repeatedly fumbling its efforts to hold the businesses it hires accountable.

Dozens of audits going back to the 1990s have found similar problems with contract management and procurement across a wide stretch of state agencies. And conflict of interest questions similar to those now dogging the 21CT deal have periodically emerged over other state contracts.

“I think it’s gotten worse rather than better in terms of the oversight, the accountability and making sure that people aren’t taking advantage of the contracting process,” said state Rep. Sylvester Turner, D-Houston, who has been critical of privatization efforts since joining the Legislature in 1989.

“My observation over the years is we have often entered into contracts that may not have been in the best interest of the state, and we try to overcome it by managing them poorly,” said Carl Isett, a Republican state representative from Lubbock from 1997 to 2010 who worked on contracting issues and is now a lobbyist. “It’s just the recurring theme.”

While contracting problems have arisen in nearly every corner of state government, including foster care, standardized testing and border security, Texas’ highest-profile disasters have coincided largely with big information technology projects that come in over budget, behind schedule or both.

In 1991, the Texas attorney general’s office signed an $11 million contract to computerize its child-support payment system. By 1997, the deal with Andersen Consulting had ballooned to more than $68 million and was three years behind schedule. A state audit found that the company deserved a share of the blame for overpromising and underperforming.

A decade later, Andersen Consulting had renamed itself Accenture and was in the crosshairs of Texas law Poorly trained personnel and technical problems led to a series of well-publicized snafus, including applicant backlogs growing by thousands and misinformed workers denying benefits to eligible families. Texas ultimately paid Accenture $244 million and canceled the contract.

Despite the two high-profile flubs, Accenture’s relationship with Texas appears stronger than ever. The company is in charge of most of the state’s Medicaid claims processing, as well as a $99 million upgrade of the attorney general’s child support payment system, two areas synonymous with its past missteps.

State Rep. Garnet Coleman, D-Houston, who was first elected in 1991, said he would support temporary “freeze-outs” from future bidding by companies that have been shown to handle past contracts poorly. Yet more important than holding vendors accountable, he said, is boosting the state’s resources so that agencies aren’t outgunned when dealing with the private sector.

“The only way to do outsourcing properly is to have enough people working on the agency side to do appropriate oversight of the company that has the contract,” Coleman said. “What we don’t want is the tail wagging the dog, which is what usually happens.”

Coleman recalled being in the Legislature in the 1990s, when “outsourcing” emerged as a buzzword, coming up constantly in hearings and policy proposals. Texas was drawing national attention for its efforts to transfer responsibilities onto the private sector, which Republican lawmakers predicted would lower costs while producing a reliable, efficient and technologically sophisticated delivery of services.

In 1997, under Gov. George W. Bush, the state began taking bids to outsource the state’s welfare, Medicaid and food stamp programs, predicting that doing so would save the state at least $10 million a month. The concept, viewed at the time as the most ambitious privatization effort by any state, fell apart after President Bill Clinton denied Bush’s request for a waiver from federal rules requiring that government employees handle much of that work. Bush accused Clinton of siding with politically powerful labor unions over good policy solutions.

The setback slowed, but didn’t stop, Texas’ march toward privatization. In 2003, Gov. Perry signed House Bill 2292, which consolidated 12 health and human services agencies into five and ultimately replaced thousands of state workers with private contractors handling duties like screening welfare recipients.

More than a decade later, the bill’s author and lead proponent, former state Rep. Arlene Wohlgemuth, described the bill as a success in its goal of shrinking state government and outsourcing services better handled by the private sector. Yet contracting oversight needs to be reformed, she said.

“In my opinion it is one of the greatest weaknesses of state government,” said Wohlgemuth, executive director of the Texas Public Policy Foundation, a conservative think tank. “We need to do a better job of enforcing the contract once we have agreed upon it and auditing those contracts.”

Last month, newly elected Gov. Greg Abbott directed all state agencies to follow new, enhanced contracting rules, including requiring agencies to publicly disclose all no-bid contracts, as well as a “public justification” for use of the no-bid method.

Abbott’s order is just one reaction to the health commission’s no-bid contract with 21CT, which has drawn allegations of cronyism and incompetence. Yet for all the coverage that deal has received, it is a relatively small item in state contracting. Most big contracts are for highway projects and involve organizations providing health services to Texans. And for the most part, they operate without incident.

The health plan vendors, who handle billions of state and federal dollars, deliver on time and with fewer problems because there’s more than one contractor in the region, Goodman said. If one had to be pulled, the others remain and there’s no interruption in service.

Contractors are also required by state lawmakers to be more transparent than in the past. If they’re late or are fined for performance, you can see it on the health commission’s website. The agency has also, in recent years, shortened the time it takes to go from a warning to a fine for a contractor.

“You don’t get a whole lot of warning now,” Goodman said. “You are out of compliance; you get a fine.”

“We’re prepared to throw the book after the welfare mom, but the people who are getting the $10 or $20 or $150 million contract, we deal with them in a very different fashion,” Rep. Turner said. “When there are questions raised about whether there’s been abuse of the contract, we’re not as animated or outraged.”

Discussions continue among lawmakers on what they can do this session to improve contract oversight.
I note that Guam has long required that all sole-source contracts be identified by an annual report to the legislature. It is also considering more stringent disclosure of the determinations that must be made to engage in a sole-source solicitation.